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Why the Wattle Health share price could fall today

A2 Baby formula shares

The Wattle Health Australia Ltd (ASX: WHA) share price could be set to fall this morning after an after-market update announcing the commencement of legal action against its Indian supply partner.

What did Wattle Health say in its announcement?

In yesterday’s announcement, Wattle Health said it has completed product registration in India and as a consequence it has demanded Vasudevan and Sons Exim Private Limited (VSEP) provide its bank guarantee (required under the agreement) and to comply with the VSEP supply agreement terms.

Despite the company’s request, Wattle Health announced that VSEP is yet to provide the full amount of the bank guarantee and VSEP is now in breach of the VSEP supply agreement.

The company announced it has now commenced legal action in India against VSEP to protect its commercial interest and with a view to recover its losses.

Wattle Health also noted that it has received a deposit of $100,000 from VSEP in December 2018 which is not refundable under the VSEP supply agreement.

What’s the story behind the deal?

Wattle Health has previously announced that it has entered into a supply agreement with VSEP for the supply of the company’s natural baby food range.

The company has also provided further updates to the market regarding its VSEP supply agreement, including on 31 January 2019 when Wattle Health announce it was currently developing packaging for a proposed first shipment planned for Q1 2019.

Wattle Health also reported on 30 April 2019 that it had submitted an application to the relevant Indian authorities for product registration, which would trigger the commencement of a 12-month supply period and the requirement for provision of a VSEP bank guarantee to Wattle Health.

However, based on the information in yesterday’s announcement, Wattle Health’s foray into the lucrative Indian market appears to have hit a temporary snag.

While Wattle Health has managed to sign several large contracts to enter the Asian market, the ability to capture significant market share in India could significantly increase revenues for the company in a country with such a large population and high birth rates.

Prior to market open, the Wattle Health share price is trading at $0.52 per share, having seen its share price plummet 42.9% so far in 2019.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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